By John Lipsky in Jackson Hole
In my first two Jackson Hole blogs, I addressed some of the key challenges to restoring growth. Yet whatever shape the recovery takes once the Great Recession ends, several significant long-term problems will have to be faced if a solid expansion is to be sustained.
In particular, the principal sources of growth in many economies will shift, structural hurdles to growth will have to be overcome, the legacy of anti-crisis fiscal policies will have to be dealt with, and the governance of global economic policy will have to adjust to new realities. In other words, the agenda will be packed for many Jackson Hole Symposiums well into the future.
At present, growth in the principal economies is being restarted with the help of massive fiscal and monetary stimulus. As has been noted widely, a sustained expansion will require a shift back to private demand. Yet the U.S. recession has been marked by a significant increase in U.S. household saving out of current income that has been associated with the substantial losses in household net worth suffered during the past two years.
The stimulus has provided a fillip to markets.
An immediate result has been weak consumption spending, and a significant decline in the U.S. current account surplus. Not only did these shifts appear to be inevitable even before the current crisis, but they almost certainly are going to be long-lasting.
In other words, it was the case prior to the crisis that sustaining a global expansion will require strengthened demand growth outside the United States, an aspect that the current crisis has served to make clear to all. This premise already underpinned the IMF-sponsored Multilateral Consultations on Global Imbalances that took place in 2006/07. The aim of that exercise was to develop mutually consistent policies that would support sustained growth while reducing global imbalances by facilitating an appropriate shift internationally in the sources of growth, especially in economies that have relied on export-led growth. Whether the current crisis might have been moderated if the agreed policy programs had been fully implemented is moot, but the Consultation’s broad policy goals will remain relevant in the post-crisis period.